The Federal Reserve is invoking Depression-era power to buy massive amounts of short-term debts in a dramatic effort to break through the credit clog. The Fed will buy "commercial paper," a short-term financing mechanism that many companies rely on to finance their day-to-day operations.
read moreWho needs comedy writers when you've got Congress?
The bailout bill the Senate is schedule to vote on tomorrow addresses NONE of the failings of the bill the house voted down yesterday -- no regulatory reform, inadequate oversight, and no guarantee the taxpayers will be repaid.
It does, however, require health insurance companies to cover mental illness at parity with physical illness.
The crisis on Wall Street is shrinking net worths and erasing nest eggs. Next on the block: multimillion-dollar homes...
"...Not only are average Americans defaulting on subprime loans, wealthier individuals who were relying on bonuses that never came through or who took out option adjustable-rate mortgages and must now face the skyrocketing monthly rates have also had to flee.
The furor intensified Friday over Washington's decision to pursue Islamic militant targets inside Pakistan, with opposition lawmakers threatening the country could pull out of the war on terror if the U.S. refuses to respect its borders. "America is daily deepening the well of resentment against itself that no amount of aid or pious diplomatic platitudes will ever fill," The News daily said in an editorial Friday.
A New Mexico man with four previous drunken driving convictions had an excuse for police after weaving in and out of traffic on Interstate 40: his passenger spilled his beer.
If that was the amount owed in 2002 by only one bank, you can probably make a safe bet now hundreds of trillions $$$$ are owed in derivatives -- not $57 trillion... We are in serious trouble. --CalifChris
"amount owed" isn't really the right term. Suppose they're all mortgage-related derivatives, for example. If the mortgage-holders don't default, these hundreds of trillions $$$ derivatives will probably make money for the companies/banks that hold them. (Unless these guys were REALLY stupid, in fact, they should make a lot of money if there are no defaults.)
The problem is that they lose money on their derivatives if a certain fraction of their mortgage-holders defaults, and the derivatives are so complicated that no one knows exactly what that fraction is. That's making both potential investors (stock purchasers) and potential lenders wary of dealing with companies holding lots of derivatives, and the concern is that the companies may go bankrupt before the returns from their derivatives come in. That's what happened to LTCM --
In the end, the idea of LTCM's directional bets was correct, in that the values of government bonds did eventually converge. Due to the high leverage, however, this only happened after the firm's capital was wiped out. Thus, the incident confirms an insight often (though perhaps apocryphally) attributed to the economist John Maynard Keynes, who is said to have warned investors that although markets do tend toward rational positions in the long run, "the market can stay irrational longer than you can stay solvent." en.wikipedia.org
At the HEART of the mortgage meltdown is Barney Fag, the democrat party and "The Community Reinvestment Act". --FWThom, #27
His last name is Frank.
The CRA is irrelevant.
# CRA doesn't require loans to be made, to minorities or anyone else. It requires that the same rules apply to people seeking mortgages in poor neighborhoods as those buying in other neighborhoods. "Nor does the law require institutions to make high-risk loans that jeopardize their safety," according to the Federal Reserve's CRA Web site, "To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner."
CRA only applies to federally-regulated banks and thrifts whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Mortgage broker and mortgage companies like Countrywide Financial and fly-by-night cheapmortgage.com-type operations that provided the overwhelming majority of subprime mortgges were not federally-regulated and were not covered by CRA. Half of the subprime mortgages were made by companies that weren't covered by the CRA, and another 30 percent were written by organizations only loosely affiliated with CRA banks. nw.org
...the Dems and poor people did not package these flaky mortgages up, call them AAA+ securities and resell them. The Republicans on Wall Street did.
FOurth, Democrats and poor people did not invent exotic derivatives...
I think it has been a remarkable ploy to try to blame this mess on Democrats and poor people exclusively...
#20 | Posted by johnjkavanagh
Well said.
This article's focus on mortgage defaults is misplaced. Everyone at even relatively low levels of banking finance knows how to safely handle risky assets.
There's a good explanation of the problem with the way these mortgages were securitized in the "Mortgage Science Projects" section of this series (good recommendation, Corky):
The next couple sections about credit default swaps explain how these companies circumvented regulations designed to make sure insurance companies have enough money to cover what they insure.
As an aside, the first company to go under by using derivatives, Long-Term Capital Management (LTCM), was playing the same game using securities backed mostly by government bonds. en.wikipedia.org
As a loan officer I am blown away about how little you all know about mortgages. Illegals getting home loans is fraud it is a federal offense. I have denied people who were not legal the credit report will say in the fraud section that the ss# does not match the borrower. So the loan officer the underwriter and the client all need to be investigated
#11 | Posted by thomphar
Bears repeating. Thanks.